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NZ current-account deficit widens as commodity prices fall, banks fatten profits

Wednesday 21st December 2011

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New Zealand’s current account deficit widened more than expected in the third quarter on weaker prices for export commodities and fatter profit from the nation’s Australian owned banks.

The current account gap was $4.6 billion in the three months ended Sept. 30, from a revised gap of $844 million three months earlier, according to Statistics New Zealand. The annual gap grew to $8.68 billion, or 4.3% of gross domestic product, from $7.4 billion, or 3.7% of GDP three months earlier.

Weaker prices for New Zealand’s biggest export commodities, dairy products, meat and logs, while imports also fell, shrank the goods surplus by $513 million to $481 million in the latest quarter. At the same time, the income deficit widened to $2.8 billion from $2.4 billion in the second quarter, mainly reflecting the outflow of profits to the Australian-owned banks and dividends paid to overseas investors.

Foreigners increased their earnings from New Zealand by $441 million in the latest quarter. Total earnings of foreigners were $4.2 billion while New Zealand investments overseas yielded about $1.4 billion.

Economists had expected the deficit to widen to $3.83 billion in the latest quarter for an annual deficit of $8 billion, or 3.9 percent of gross domestic product.

The New Zealand dollar recently traded at 76.78 US cents from 76.84 cents immediately before the figures were released. The trade-weighted index slipped to 68.64 from 68.68.

The services deficit shrank to $290 million from $402 million three month earlier, reflecting the export of travel transportation and transportation services as visitors flocked to the Rugby World Cup. Some 80,000 people visited for the sporting tournament.

New Zealand’s net liabilities grew to $148.2 billion in the third quarter, amounting to 72.9 percent of GDP.

The nation’s foreign-currency credit rating was cut to AA from AA+ by Standard & Poor’s in September, which cited the likelihood of a further deterioration in the nation’s external position at a time when the economy has been weakened by the Christchurch earthquakes. Fitch ratings also lowered the sovereign rating.

The widening current account deficit is likely to “continue over 2012 given a peak in the terms of trade and weaker export growth,” said Philip Borkin, economist at Goldman Sachs New Zealand. “This backdrop highlights the unlikelihood of NZ’s credit rating being upgraded any time soon.”


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